Whenever I am consulting with business owners, especially newer ones, the subject of pricing comes up frequently. Product pricing can be determined mostly using a formula, but pricing services can feel like a shot in the dark. There is no magic formula that works for every situation (unless you have one, in which case please share!), but there are ways to figure out if you are charging an appropriate rate for your services.
I use a simple spreadsheet to track my research which you can find here. You can download it by going to File > Download As, and then choosing which format you'd like to use.
Note: The formulas I have included make a few assumptions: that you fill out all 10 blank spaces on tabs one and two, and that you are working 8 hour days/40 hour weeks. You will need to update the formula for the averages throughout if you choose to use a different number of comparables or hours per day/week.
This may seem like a no-brainer, but doing research before setting your own rates is important. Charge too little and you're losing money on a project, but charging too much can drive potential customers away before you have a chance to speak with them. Find several comparable businesses that target similar markets and offer services like your own--the more comparable you have, the more accurate your pricing will be. Tab 1 of my spreadsheet contains the table to complete for comparable services research.
Research Salaries for Similar Jobs
If you were employed by a company to complete the services you sell, they will pay you based on industry norms and experience level. Glassdoor has an excellent salary tool that takes your geography into account. Once you find the annual salary for a comparable position, fill out the second sheet of the spreadsheet to figure out average hourly rates for those positions. Compare these results to the first tab, and you'll have a better picture of what reasonable rates for your area are.
Cost of Doing Business
When setting your prices, you have to make sure that you are covering the costs of operating your business. For this, you'll need to know how much you are spending on supplies, infrastructure, and other business needs, and then convert than into an hourly figure. The third sheet contains a table that will help you determine how much you need to make per hour to cover these costs.
In the end, you have to price the services that you offer in a way that makes you comfortable, but following these steps will ensure that your pricing is fair to both you and your consumer. Be sure to revisit your pricing regularly to keep your pricing in line with industry changes. Personally, I revisit my pricing structure at least once each quarter.
Need help? Send us an email at ashley [at] wonderlandmedia [dot] ca.